Reckitt takes hit from stumbling Scholl and price pressure

LONDON (Reuters) - Reckitt Benckiser lagged other consumer good makers in the first quarter as further falls in Scholl footcare and lower prices hit the British company’s sales growth.

Products produced by Reckitt Benckiser; Vanish, Finish, Dettol and Harpic, are seen in London February 12, 2008. REUTERS/Stephen Hird/Files

Bernstein analysts said Reckitt’s like-for-like sales growth was “bottom of class” of the five European food and packaged goods companies that have reported quarterly sales so far, and it shares fell more than 6 percent to their lowest level since the start of 2015.

Rakesh Kapoor, who runs the maker of Durex condoms, Lysol disinfectant and Mucinex cold medicine, said on Friday that pricing power could soon return as commodity costs edge up, but said it was hard to pinpoint when.

In the first quarter, Reckitt’s like-for-like sales rose 2 percent, below analysts’ average estimate of 2.6 percent, according to a company-supplied consensus.

Volume was up 3 percent, implying that overall pricing had a negative 1 percent impact, worse than Nestle and Unilever.

GADGET GAMBLE

One of the biggest problems, however, was performance of footcare brand Scholl, which has been a drag for two years, following the failure of an electronic foot file that cost upwards of $40 to smooth dry heels.

Even in the latest first quarter, far on from the launch, declines in the Scholl brand reduced overall sales in Reckitt’s health unit by 2 percentage points.

UBS analysts said this suggests the issues “are not confined to a ‘one-off’ product failure but are instead more widespread” and questioned whether the foray into gadgets was a good one.

Reckitt’s Kapoor said they can work in other brands like Airwick air fresheners, where the gadget is affordable and the more profitable refills are replaced frequently. But Reckitt was “badly burned” on the Scholl gadget, he said, which was too expensive with refills that didn’t need as much replacing.

The problem has lingered so long, Reckitt says, because of the resulting hole in the brand’s offering and lost shelf space.

“It’s like a terrible, terrible part of RB,” Kapoor said of the Scholl gadget, lamenting how much time has been spent talking about one brand “as if it’s the one thing that matters”.

Scholl’s sales have been stable over the last three quarters, Kapoor said, but year-ago comparisons remained tough. They should ease in the back half of the year, he said.

Turnaround efforts include three upcoming product launches that are not gadgets and streamlining the overall range, which includes shoe insoles and treatments for corns and blisters.

“In the long run, this is a category with strong potential,” Kapoor said, noting that eighty percent of people have some kind of foot problem, but only twenty percent treat it.

WEAK HEALTH

Overall, Reckitt’s health-related products, which make up 62 percent of the business, saw like-for-like sales up just 1 percent, while the home and hygiene business grew 4 percent. The latter unit is where the pricing pressure was concentrated.

That is partly why Reckitt has moved deeper into consumer health, which it says enjoys better long-term prospects due to aging populations and growing interest in health and wellness.